Taxation Powers of union & State Government

In India, the constitution is Supreme and all laws and actions of the Government are sub-ordinate to it. The constitution provides that no tax shall be levied or collected except by authority of law.

The Structure of Government in India is federal in nature. As per article 1(1) of constitution, India shall be union of States. There is a bifurcation of powers between union and states. Government of India (Central Government) has certain powers in respect of whole country. Each state (and union territory) has certain powers in respect of that particular state (Union territory).

Indian constitution

India has a three-tier federal structure, comprising the following:-

(a) The Union Government

(b) The State Government

(c) The Local Government

The power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of Indian Constitution. The constitution consists of a preamble, 25 parts containing 448 articles and 12 Schedules.

Provisions of constitution regarding taxation

The power to levy and collect taxes emerges from the constitution of India. The following are the significant provisions of the constitution regarding taxation:

1. Article 265: It states that no tax shall be levied or collected except by authority of law. In fact, it prohibits arbitrary collection of tax.

2. Article 246: The authority to enact law and levy taxes and duties is given by constitution vide Article 246. The Parliament may make laws for the whole of India or any part of the territory of India, the State legislature may make laws for whole or part of the State.

3. Seventh Schedule (to Article 246): The Seventh Schedule contains three lists which enumerate the matters under which the union and the State Governments have the authority to make laws.

(a) List I (Union List): The Central Government has the exclusive right to make laws in respect of any matter covered in this list. Parliament makes law in this regard. Some of the items in List I are defense of India, naval, military and air forces, atomic energy and mineral resources, central bureau of intelligence and investigation, railways, highways, currency, RBI, post office saving bank, taxes on income other than agricultural income, duties of customs, corporation tax, etc.

(b) List II (State List): It contains the matters in respect of which the State Government has the exclusive right to make laws. These matters include public order, police, local government, public health and sanitation, hospital, burials and burial grounds, cremation ground, libraries, water, fisheries, betting and gambling, etc.

(c) List III (Concurrent List): It contains the matters in respect of which both Central & State Governments have powers to make laws. This list includes criminal laws, criminal procedure, marriage and divorce, contracts including partnership, agency, bankruptcy and insolvency, trust and trustees, trade unions, industrial and labour disputes, etc.